Coronavirus: How to fix pandemic bonds

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It is hardly surprising that the terms of the World Bank’s pandemic bond have attracted criticism.

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With the coronavirus pandemic touching nearly every country in the world, the pandemic bond that the World Bank issued in 2017 has been under scrutiny. Despite more than 735,000 cases of Covid-19 and nearly 35,000 deaths attributed to it as of Monday March 30, the bonds have still not been triggered.

It’s hardly surprising that this has attracted criticism: intuitively it seems like nonsense. There is a pandemic under way and these bonds were designed to pay money to poor countries if that happened.

If they haven’t been triggered yet, after all that has happened since December 31, what is the point of them?


The scale of the current pandemic can make the bonds seem like a detail… but it is still worth getting it right

There are, of course, technical reasons for all this. The bonds cannot pay out until 12 weeks have passed, a period that expired on March 23. After that, they only pay if an outbreak meets specific criteria within developing countries, including a growth rate based on data observed over two weeks, taking us to about April 9.

An observer might still ask: so what? If those are the rules, doesn’t it just show that the rules are wrong?

The question is not just fair but urgent. The bonds are flawed. If they are to be sold again – as is the plan when the current issue matures in July – they need to be fixed.

Top of the list must be to address the issue of testing and reporting. As they stand, the bond triggers are highly dependent on countries’ ability to test and report infection and deaths.

True picture

For the total case count, this has mattered little: data from all countries is included. But in the following two-week period, case growth in developing countries will be the determinant of any payout. If these numbers do not report a true picture, the bonds may fail to do what they promise.

And as countries like the UK have shown, approaches to testing can vary considerably. Confirmed case data depends on not just a country’s ability to test but also its willingness to do so. Death statistics are likely to be far more comprehensive and reliable. They should play a bigger role.

The scale of the current pandemic can make the bonds seem like a detail – what is $196 million of pandemic bond assistance compared with the $14 billion of direct aid that the World Bank is providing or the trillions of dollars that governments are spending to prop up their economies?

But it is still worth getting it right. The poorest countries in the world are not able to deploy the central bank firepower of the US and there will be smaller outbreaks of this and other diseases in the future that may well be confined to developing nations.

The point of an institution like the World Bank using this structure was to show how capital markets can help provide innovative assistance. It may of course prove impossible, or not cost effective, to structure a bond that can pay out more readily while still being attractive to bondholders.

But for now, that seems still unproven. There is enough to be fixed, now with the benefit of awful real-life data, to make it worth trying again.